Should business owner stay in state, or go?

Tracy Melton, president of Melton International Tackle, founded Melton Tackle in Anaheim in 1993. He is now considering moving his business to Texas after the passage of Prop. 30 and after calculating his property tax, personal property tax, other fees and sales tax, and figuring he's paying more than half his salary in taxes. LEONARD ORTIZ, ORANGE COUNTY REGISTER

Melton International Tackle, which sells fishing gear worldwide, is marking 20 years in business in Anaheim during 2013. It may be the last.

Owner Tracy Melton is consulting with his financial experts and exploring other locations for his 30-employee company. He says recent state tax hikes may be the last straw that drives him out of what he considers to be a state unfriendly to businesses.

"I am not rich by any means," Melton said. "I work hard, keep 30 people off unemployment, and my reward is that the state and feds want to take more than half of any profit I make."

Melton has not made a decision on whether he should stay – or go – but his complaints are a familiar refrain among local small business owners who struggled through the recession and express concerns about any new taxes and regulations.

In November, California voters approved Proposition 30, which increases the sales tax a fourth of a percentage point (now 8 percent in most of Orange County), and raises the state income tax for individuals earning more than $250,000 a year. That income tax increase hits many entrepreneurs, including Melton, because they structure their companies to pass their revenues through to the owners who pay individual income tax.

Melton started as a mail-order business in a 1,000-square-foot industrial space in Los Alamitos in 1993. He opened a retail location in 1997, added a second store in Hawaii in 2005 (closed in 2009) and started an e-commerce website and bought a warehouse with a storefront on State College Boulevard in 2007. Annual revenues are now $10 million.

Melton said his tax rates will total almost 54 percent – 39.6 percent for federal income tax (recently increased), 10.3 percent for state income tax and 3.8 percent Medicare surcharge for adjusted income over $200,000 for individuals, $250,000 for couples.

He estimates that he pays $150,000 in income and property taxes annually. He pays personal property tax to the county for all business equipment and premiums for workers' compensation insurance for 30 employees. He also collects almost $1 million in sales taxes for California.

"I don't mind paying my fair share, but I don't think it's fair that I have to work until the Fourth of July to pay my state and federal taxes," Melton said.

He is referring to a "Tax Freedom Day" calculation that the Tax Foundation, a Washington, D.C., advocacy group, came up with when considering how many days Americans would have to work just to pay all their taxes. Residents in high-tax states such as California and high-income individuals would have to work longer.

"In California, you barely pay your bills on $250,000 income," said Melton, 44, who lives in Ladera Ranch. He is married and has two children. "I killed myself for 20 years to grow the business to this point. I lived with my parents until I was 30 so I could put all the money back into the business."

Many retailers and service providers can't move out of California, but Melton said he can. Only 15 percent to 20 percent of his business is in California. He's looking at sites in the Houston area because he estimates a middle-of-the-country location could save an estimated $30,000 annually on shipping costs alone.

Critics long have said that California is driving businesses and residents to other states that have lower taxes and regulations. The top reasons companies cite for moving out of California are: cost of living (33 percent), business climate/wages (20 percent), taxes (14 percent) and state government overspending (8 percent), according to a recent Reason-Rupe survey.

No definitive data about departing companies is available, but Irvine business consultant Joe Vranich has compiled hundreds of examples of companies moving some or all of their operations and jobs out of California. The list included 254 such companies in 2011 alone. He said he has been too busy to update the list for 2012.

One Vranich client, who owns a growing company, said he is postponing a major equipment purchase until after moving out of California because the quarter-cent sales tax increase would increase the machinery's cost by thousands of dollars. Another client, which does wood finishing, is moving out of state because of Air Quality Management District prohibitions. A third client said he will move his business to North Carolina, Florida or Texas because his net worth hasn't grown in 20 years, despite building a company that employs 20 people.

Tracy Melton, president of Melton International Tackle, founded Melton Tackle in Anaheim in 1993. He is now considering moving his business to Texas after the passage of Prop. 30 and after calculating his property tax, personal property tax, other fees and sales tax, and figuring he's paying more than half his salary in taxes. LEONARD ORTIZ, ORANGE COUNTY REGISTER
Customers pack the sales floor at Melton Tackle in Anaheim. The business is considering moving to Texas due to the high taxes in California. LEONARD ORTIZ, ORANGE COUNTY REGISTER
Tim Richardson, left, of Australia inquires about a trolling lure from 20-year friend Tracy Melton, owner of Melton Tackle in Anaheim. Richardson just arrived from Australia on his way to Panama so he stopped by the store to visit his friend and pick up some fishing supplies. LEONARD ORTIZ, ORANGE COUNTY REGISTER
The shipping department at Melton Tackle in Anaheim ships fishing-related products all over the world. The company is considering moving to Texas. LEONARD ORTIZ, ORANGE COUNTY REGISTER
Tracy Melton, president of Melton International Tackle in Anaheim is shown in the company's warehouse. Melton, who ships fishing related products all over the world, is considering moving his business to Texas because of California's high taxes on businesses. LEONARD ORTIZ, ORANGE COUNTY REGISTER
Tracy Melton, president of Melton International Tackle, founded Melton Tackle in Anaheim in 1993. He is now considering moving his business to Texas after the passage of Prop. 30 and after calculating his property tax, personal property tax, other fees and sales tax and figuring he's paying more than half his salary in taxes. LEONARD ORTIZ, ORANGE COUNTY REGISTER
Melton Tackle is located at 1375 S. State College Blvd. in Anaheim. LEONARD ORTIZ, ORANGE COUNTY REGISTER

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